Headway Corporate Resources, Inc.

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Headway Corporate Resources, Inc.

850 Third Avenue
11th Floor
New York, New York 10022
U.S.A.
Telephone: (212) 508-3560
Fax: (212) 508-3589
Web site: http://www.headway.com

Public Company
Incorporated: 1986 as Phoenix Capital Corporation
Employees: 10,500
Sales: $360.7 million (1999)
Stock Exchanges: American
Ticker Symbol: HEA
NAIC: 541612 Human Resources and Executive Search Consulting Services

New York-based Headway Corporate Resources, Inc., provides resource and staffing services primarily to the financial services industry, which includes banks, insurance companies, and associated businesses such as accounting and law firms. Headway offers executive search services through its subsidiary, the Whitney Group, which has an international presence in Hong Kong, Japan, Singapore, and the United Kingdom. Employing a hub-and-spoke organization, Headway’s temporary staffing business operates out of regional offices. In addition to providing clerical support staff through its Office Temps Division, Headway also places production and design specialists through its Graphics Staffing Division; computer programmers and an array of information technology specialists through its Technical Staffing Division (Headway Technology Resources); and food-service workers, light industrial workers, and medical support staff through its Support Services Division. In some cases Headway acts as a “vendor-on-premises” to provide administrative functions for temporary staff, in effect acting as an outsourced Human Resources Department. In recent years Headway has been extremely aggressive in acquiring smaller staffing companies in order to diversify the mix of industries and regions it serves, as well as to expand beyond the financial sector to media/entertainment, Information Technology, telecommunications, consumer goods, and e-commerce. Headway also has taken steps to incorporate the Internet into its recruiting efforts.

Emergence of Temporary Staffing Industry After World War II

The two largest temporary employment services companies, Kelly Services and Manpower, were both founded shortly after World War II. Following a stint in the Army’s Quartermaster Market Center, where he became familiar with office procedures and equipment, William Russell Kelly opened a general office services company in Detroit, Michigan, in 1946. Working out of his home initially, Kelly and his employees performed typing, copying, and accounting work for local companies. Kelly then began to send personnel and equipment to his clients’ offices. Before long he simply sent the personnel, his “girls.” By 1957 Russell Kelly Office Services would change its name to Kelly Girl Service.

In the meantime, Manpower was created in Milwaukee, Wisconsin, in 1948 when law partners Elmer L. Winter and Aaron Scheinfeld recognized that the booming U.S. economy following World War II had created the need for agencies that could provide temporary employees. At first the emphasis at Manpower was on industrial workers, but eventually shifted to office workers. In the 1970s the temporary services industry began to expand rapidly as companies radically changed their approach to temporary employees. Rather than simply viewed as fill-ins for permanent employees, temps became part of a plan to reduce costs, at a time when the expense of hiring and maintaining employees reached as much as 150 percent of wages. Only when work flow demanded would companies bolster staffs through temporary employment agencies. During periods of downsizing, especially in the early 1990s, companies’ reliance on temporary employees became even heavier. A trend to hire employees on a project basis also fueled growth in the temporary staffing industry, which generated $28.9 billion in revenues in 1993 and grew to $62 billion by 1998. Moreover, it was estimated that 90 percent of all U.S. companies used temporary workers, provided by some 8,000 staffing companies in what can only be described as a highly fragmented industry.

Creation of Headway Corporate Resources in 1996

Headway Corporate Resources arose out of a 1991 merger between an executive search firm, the Whitney Group, and an advertising and public relations agency, AlbertFrank-Guenther Law. The new company, AFGL International, would be headed by Gary Goldstein, chairman of Whitney Partners, the corporate parent of the Whitney Group. The corporation’s initial purpose was to serve as a holding company for a number of consulting firms, including prominent financial consultant Furash & Co., acquired in 1995. In 1996, however, AFGL began to narrow its focus to the human resources business. While retaining Whitney’s executive search business, it sold off its advertising and public relations interests, and through a newly formed subsidiary, Headway Corporate Staffing Services, Inc., acquired Irene Cohen Temps (as well as other assets of Irene Cohen Personnel, Inc.), Corporate Staffing Alternatives, Inc., Certified Technical Staffing, and Vogue Personnel Services—at a total cost of approximately $12 million for the New York-area agencies. AFGL International in November of 1996 reincorporated in the state of Delaware, changing its name to Headway Corporate Resources, Inc. Goldstein’s stated intention was to increase the company’s revenues from $70 million to more than $250 million within two years. In addition to clerical temps, he anticipated placing highly skilled financial professionals in a banking industry that was increasingly opting to hire on an assignment basis. Goldstein also wanted Headway to manage human resources departments, as well as to provide strategic planning for the hiring of temporary staff.

Headway’s 1996 acquisition of temporary staffing agencies gave the company an immediate presence in the important Manhattan market. It developed a decentralized hub-and-spoke strategy as a way to expand its business beyond New York. Its large hub offices were intended to cut down on overhead costs, providing a competitive edge in pricing, a model that also granted Headway national stature while allowing for local differences. In 1997 Headway opened a Western hub in Montebello, California, with just three staff and five temporary employees, working out of a 500-square-foot office. Within a few years the hub would have 44 staff members overseeing some 2,500 temporary employees, becoming one of the top five staffing companies in southern California. Headway’s philosophy of decentralized control gave local management the leeway to take advantage of a large pool of unemployed actors in a way that would not be appropriate in other regions.

Headway continued to make acquisitions in 1997, as it looked to expand its reach geographically while making the company less reliant on the financial services sector. In addition to New York-based Administrative Sales Associates Temporaries, Inc. and Administrative Sales Associates, Inc., Headway bought Advanced Staffing Solutions, Inc., based in Raleigh-Durham, North Carolina, and E.D.R. Associates, Inc. and Electronic Data Resources, L.L.C., both located in Windsor, Connecticut. Furthermore, Headway refined its focus by selling off Furash & Co., which according to Goldstein no longer fit in with the long-term thinking of the company.

In 1998 Headway turned to one of its clients, NationsBank Corporation, for $110 million in financing not only to fuel its program of strategic acquisitions but to refinance debt. Through the course of the year, Headway would make seven more acquisitions and expand into four new regions. It acquired Cheney Associates and Cheney Consulting Group, located in Hamden, Connecticut; Shore Resources, Incorporated, located in Los Angeles, California; substantially all of the assets of the Southern Virginia offices of Select Staffing Services, Inc.; Staffing Solutions, Inc. and Intelligent Staffing, Inc., located in Miami Lakes, Florida; Phoenix Communication Group, Inc., located in Woodbridge, New Jersey; and Staffing Alternatives International, Inc. and VSG Consulting, Inc., located in Dallas, Texas. Headway also would supplement its executive search business with the acquisition of Chicago-based Carlyle Group Ltd.

By the end of 1998, Headway would have regional hubs in California, Connecticut, Florida, New Jersey, North Carolina, and Virginia. Recent acquisitions, especially in North Carolina’s Research Triangle, would increase substantially the company’s expansion into Information Technology staffing, boosting the IT share of its 1998 revenues to 20 percent. Overall, revenues would be more than double those of the previous year, rising from $142.8 million in 1997 to $291.3 million in 1998. Goldstein’s two-year goal to reach $250 million in revenues was, as a result, easily surpassed.

Company Perspectives:

Headway offers a complete range of outsourcing solutions through Permanent, Temporary and Vendor on Premise staffing. We supply the full spectrum of Today’s most demanded job titles in Information Technology and internet Development, Graphic Design, Financial Services, as well as core support Administrative, Clerical, or Light Industrial Staffing.

Due to a robust economy in the late 1990s that resulted in an extremely low unemployment rate, the number of potential temporary employees available to Headway and other staffing agencies was reduced significantly. Heavy emphasis was placed on recruiting, evaluating, and training, and on keeping employees. By the end of 1999 Headway employed almost 10,000 temporary staffers in a typlcal week. To maintain its roster Headway recruited through newspaper advertisements, referrals from employees and clients, and outreach to job fairs, educational institutions, and community groups. While it did not think that the Internet was a complete answer, Headway did use Internet sourcing as one of a number of recruiting tools. (Moreover, in 1999 the company formed a strategic alliance with JobDirect.com to help fill entry-level positions in the lucrative college recruiting market.) To make sure candidates for temporary employment were able to fulfill the needs of its clients, Headway employed a thorough screening process, which included a careful check of references and what it termed a “total person interview,” the purpose of which was to determine a candidate’s aptitude in terms of handling responsibility, as well as motivation and enthusiasm. Headway also evaluated skill levels to be certain that candidates would be able to perform the tasks required by clients. In addition, Headway provided computer tutorials for employees wishing to upgrade basic office skills. Although such training helped in retaining its base of temporary employees, more important was the fact that Headway paid competitive rates and offered benefits to qualified employees, including insurance, vacations, holidays, and 401(k) programs.

In 1999 Headway continued to pursue its plan of strategic acquisitions that could easily be folded into its operation. In June of that year it purchased the information technology staffing division of Nine Rivers Technology Corporation, which included 85 employees in offices located in Raleigh, North Carolina; Dallas, Texas; and Boca Raton, Florida. Not only did Headway bolster its presence in North Carolina’s important Research Triangle, it added market share in two other fast-growing high-tech areas of the country. Headway expanded its executive search business and its overseas business with the acquisition of England’s oldest executive search firm, Tyzack and Partners, Ltd. Consolidated with Whitney’s London office, which focused on the financial sector, Tyzack brought much needed experience working in media/entertainment, telecommunications, consumer goods, IT, venture capital, and e-commerce. Overall, Whitney showed strong growth in 1999 and was ranked as the top recruiter in the financial services industry in a survey of more than 2,000 HR professionals and line managers. The fact that almost 40 percent of the placements made by Headway’s executive search division were nonfinan-cial proved that the company was making great strides in diversification.

Headway Stock Languishing Despite Success in the Late 1990s

Results for 1999 showed continued growth for Headway. Revenues climbed 24 percent, reaching $361 million. Net income increased by 18 percent, rising from $6 million to $7.1 million. Nevertheless, Goldstein was frustrated that the price of Headway stock did not reflect the company’s strong numbers, efforts to diversify, and potential growth. The company seemed to be lumped in with other staffing companies with less than stellar performances. After reaching a high of $11.75 in 1998, Headway stock fell to a low of $3.19, a level at which it floundered. With a market capitalization in the range of $38 million, Headway with its $361 million in revenues was valued by investors at barely more than a tenth of sales. Goldstein began to seriously consider turning to private equity investors in order to take the company private. Not only would such a move increase Headway’s value, it also would forestall the tempting possibility of a hostile takeover that could be accomplished with a lowball bid.

In 2000 Headway initiated a major deal that could have a significant impact on its future growth. The company signed a letter of intent with the Shanghai Foreign Service Company (FSCO) to serve as the exclusive agent representing information technology specialists from the People’s Republic of China to work in the United States. Tied closely to the Chinese government, FSCO was the largest provider of human resources services to multinational companies doing business in China. Due to a severe shortage of IT professionals in the United States, Headway looked to prosper with access to the world’s largest untapped resource of trained workers.

Whether Headway went private or remained a publicly traded company, it appeared poised to continue its pattern of growth and diversification. Because of tight labor conditions, many companies opted for the security of permanent workers over temporaries, causing many staffing companies to languish, and putting a further drag on the price of Headway stock. Underperformers also made themselves inviting acquisition prospects. With thousands of staffing companies in the industry, and the need for their services likely to rebound, Headway was expected to continue making selective acquisitions and blend the new resources into its highly successful hub-and-spoke organization. Although it was far from ready to rival giants Kelly and Manpower in size, by the beginning of the 21st century Headway was fashioning a solid national and international reputation.

Principal Subsidiaries

Headway Corporate Staffing Services; Whitney Partners, L.L.C.; Tyzack Holdings Limited; Carlyle Group.

Principal Divisions

Office Temps; Graphics Staffing; Technical Staffing; Support Services.

Principal Competitors

Adecco; Kelly Services Inc.; Manpower, Inc.

Key Dates:

1986:: Phoenix Capital Corporation is organized in Nevada.
1991:: Company merges with the Whitney Group.
1996:: Company sells off public relations interests to focus on Human Resources; business is reincorporated in Delaware as Headway Corporate Resources.
1999:: Company acquires U.K. executive search firm Tyzack and Partners Ltd.
2000:: Company agrees to serve as the exclusive U.S. agent representing information technology specialists from the People’s Republic of China.